Strong dollar, NFP and Dirk Philipsen

The US Dollar index is going strong at 93.40 which is its strongest since November 2020. The US yields are also rising, with the 10 year yield trading around 1.74 levels which is around its 1 year high levels. The main data point in coming days will be NFP which is going to be released on Friday. Given that it is a holiday and markets won’t be working to respond to the numbers, some sort of re-positioning will occur before the data release. It is expected that it is going to be a blockbuster report showing stellar new job additions. Under such expectation it is not difficult to find reason for yield and dollar movement. On the contra side, rising covid cases and the news that Biden’s administration proposed multi trillion dollar infrastructure package will be spread over a number of years, has curbed some of the enthusiasm.

As we acknowledged the significance of NFP numbers above, it is a good time to have a quick look at some history. In the book The Little Big Number, author and economic historian Dirk Philipsen traces the origins of all economic data collection in the US. He writes that in the early 20^th century the only economic dictum prevalent was complete Laissez Faire. Governments were tiny in comparison to what we see today and generally believed that the businesses should be left on their own (completely). The busts post the boom were seen as natural and were even considered necessary to remove slack from the system. They were seen as moving capital from unworthy to worthy. The governments were not supposed to operate in a deficit mode apart from a war scenario. The unemployment benefits and social security covers were unknown.

Philipsen writes that around the 1920’s a movement in US Congress started where the collection of reliable economic data was seen as necessary for policy making. The institutes like the National Bureau of Economic Research (NBER) were created which were responsible for dispassionate, cold statistic collection. The saying was that people are allowed to have their individual economic philosophy but not their own facts. The quest for hard data continued and got lot of emphasis post the economic collapse in the year 1929. The government which was seen until then as only an arbiter and rule implementer morphed into the all benevolent paternal figure. The New Deal program was the culmination of economic data collection which started in the 1920’s. The central banks and governments actively trying to prop up every possible market nowadays would have seemed extremely alien to the administrators a century ago.

Domestically, the rupee is trading weak and bond yields are trading a little up. The 10 year yield is trading at 6.17. The H1 borrowing calendar for the coming financial year will be issued today post market hours. The expectation is that 60% of the total year’s borrowing will be done in the first half, any changes there will lead to yields inching higher. Post that market will start positioning for next week’s MPC.